Shimano’s dominant role in the bicycle industry has interesting parallels with Amaury Sports’ influence in professional cycling which highlights a left-field opportunity that might be worth exploring.
Images: Tanaka Sonoko and Shimano
At some point in history, the Tour de France (ASO’s nucleus) and Shimano ceased to be mere brands in the world of cycling.
For years now, both entities have been venerated, lauded and referenced in effusive tones that, whether intended or not, emasculate others around them. They have become totems in their respective fields.
That ASO was not only able to disrupt reforms by cycling’s governing body, but completely undermine its authority by a simple media release which devastated the illusory construct of an omnipotent WorldTour established definitively (once again) that ASO is centre pole in the unstable tent that is pro cycling.
Yet some observers suggest that if La Grand Boucle was removed altogether from the WorldTour, pro cycling would still be left with a saggy tent that could remain viable with some reorganisation of existing poles (whether or not that theory holds true should be known some time after June, when the 2017 WorldTour calendar is finalised).
The tent analogy needs to be reworked for Shimano, which is not so much the bicycle industry’s centre pole as the framework: remove this and the tent immediately collapse into an unrecognisable heap. That’s not to say less dominant players such as SRAM, Campagnolo and FSA couldn’t fill the void, but it would be far from a simple process.
It’s hardly a revelation that both ASO and Shimano exert an enormous amount of influence over cycling, but comparisons between the two would ordinarily go no further. It’s interesting then to peel back the layers, see just how similar they are and question whether either party realises it.
With a reported 70% market share of components in the sports bike market – and an estimated 50% of the complete drivetrain market – Shimano has become essential to the bicycle industry.
The Sakai-based company, which started in 1921, got a head start on most drivetrain component manufacturers in existence today, with the notable exception of Campagnolo. When bicycle manufacturing began moving en masse to Taiwan in the 1980’s, Japan’s proximity to assemblers afforded it a significant competitive advantage. So too did it’s broader portfolio – Campy simply didn’t offer many of the lower-end components and complete groupsets that Shimano produced.
Shimano essentially disrupted the market in a way similar to watchmakers Seiko and Casio – whose much cheaper quartz movements almost ruined the Swiss watch industry in the 1980’s – by creating new affordable segments with mass appeal. It has never looked back on its way to annual revenues of JPY378.6Bn (USD3.45Bn)
By comparison, ASO’s seven events (chronologically, Paris-Nice, Paris-Roubaix, La Flèche Wallonne, Liège-Bastogne-Liège, Critérium du Dauphiné, Le Tour de France and the Vuelta a España) will account for exactly 40%, or 60, of WorldTour racing days this season.
Shimano’s size enables it to control the bicycle market in ways that consumers may not even fathom.
As cycling consumers, we are all taken for a big ride every July – not a reference to Le Tour, though there is a correlation between increased hype around the French race and new bike purchases – when new model year road bikes start to become widely available in global markets.
Shimano didn’t invent model years, but its production and innovation cycle perpetuates this most inane quirk of the bike industry. Its capacity to supply factories/assemblers with components on time determines when new models become available. In turn, this might influence a bike shop to drop one complete bike brand and pick up another if it thinks supply from the latter will be earlier and better. This is particularly pertinent when a new Shimano groupset is being released, as most retailers want to be in pole position to take advantage of early adopter and enthusiast spend.
Because Shimano parts can comprise upwards of ~40% of a road bike’s cost, movements in Shimano’s OE price can have a large impact on consumer pricing. Though bicycle brands should in theory price according to their IP credentials (ie, what goes into the frame set), more often Shimano is used as the benchmark. Composite frames have become so heavily commoditised that brands simply ensure their Ultegra-equipped road bike is within the ballpark of a competitor’s Ultegra-equipped road bike.
The value of a complete bicycle can rise and fall depending on the extent to which it is assembled with Shimano components – it’s amazing how passionate discussion becomes amongst buyers at all levels in the industry when, for example, a Tektro brake set is spec’d over a Shimano one in order to meet a certain price point.
Perhaps most valuable to Shimano is its trickle-down, spread-wide, innovation model, whereby it invests millions of R&D dollars into creating leading-edge Made in Japan products for the absolute enthusiast, before progressively transferring new elements into other products made in factories across Asia. By ensuring this continuity of innovation and quality across a wide suite of products, Shimano has developed an enviable reputation with cycling fans (consumers).
What are the parallels with ASO here? Firstly, the business model: ASO is adept at taking elements from Le Tour and transposing them into its other products – be it La Vuelta, Roubaix or even the Saitama Criterium. Secondly, the value of the WorldTour will likely change depending on how many ASO ‘components’ are spec’d.
DIVIDE AND CONQUER
Shimano is a long-term sponsor of the UCI (its most recent four-year contract expires at the end of this year, though expect it to be renewed), offering neutral service across events in all disciplines. However, Japan’s ‘hidden treasure’ is anything but anodyne when dealing with its competitors.
SRAM’s beef with Shimano’s business practices first appeared publicly in 1991, when the US-based upstart filed an anti-trust lawsuit against its Japanese rival. An out-of-court settlement was eventually reached but the two component manufacturers have been slugging it out ever since; though SRAM has never been able to make meaningful inroads on Shimano’s market share.
This combative behaviour extends into supply contracts with pro cycling teams, where Shimano has been known to crowd out competitors with substantial cash injections in return for a wider array of product specification.
Most recently, Shimano – or rather, its subsidiary Shimano North America – has also revealed itself as a bit of a bully. Though Velonews’ Editor in Chief, John Bradley, stated Shimano’s threat to pull advertising from Competitor Group publications over a scoop on its new Dura Ace groupset was “one of many similar situations that have happened in the past” the aggressive stance was no doubt a surprise to many who regarded Shimano as a massive but benign corporation.
Prior to the advent of discount e-commerce platforms offering widely-obtainable components and service spares, it should be remembered that Shimano also moderated the growth of specialty bicycle retailer networks. If a new bike shop couldn’t secure a supply channel with their national Shimano distributor, at best this would require a substantial business plan rewrite. At worst, they mightn’t have opened. Though Shimano’s lack of control over its supply chains has broken down some of these barriers, for a time it was not only an essential supplier but also a de facto governing body (sound familiar?) of the bicycle retail network.
Though their size, influence and predisposition to protect the same causes some obvious problems, few would contest the notion that both ASO and Shimano have pioneered the way in developing the reach and reputation of cycling.
Each company has taken an independent road to reach its current point, but there is a degree of underlying co-dependence; Shimano needs ASO to create and sustain exciting spectacles that spur people to want to ride, while ASO needs Shimano to (literally) enable participants to take part in its races and mass-participation events on machines of all price points.
Given the commonalities and mutual interests, would it therefore make sense for ASO and Shimano to commercialise them?
Speculation in recent months about Dalian Wanda courting ASO has so far proven to be unfounded, yet it has started the conversation about whether Wanda Sports would be a good fit for the family-owned French company. Understandably, ASO hasn’t commented on the rumours and nobody really knows how much the business would be worth anyway.
In the event that ASO is looking for a buyer, or possibly a JV partner, then perhaps the Amaurys would preference a native peer that understands what it means to be a legacy business with deep exposure to cycling and an unmatched understanding of what consumers want.
Bike companies have already invested in teams, so why not a race or an owner of races? Shimano would be a natural fit and one of the few companies that could foreseeably afford to move on ASO.
On the flipside, it would further entrench the power of both companies and Shimano would have to be hands-off to the extent that there could be no accusations of favouritism towards Shimano-sponsored teams in ASO events!
In any case, it’s likely this thought bubble about the marriage of two companies that have as many flaws as strengths will remain just that – a thought. But it’s a tantalising one nonetheless.